Failure to pay TDS collected can attract 7-yr jail term

Employers failing to pay the Government the tax deducted at source (TDS) on salaries of their employees can be jailed for up to seven years, the CBDT has said.
Failure to deduct income tax on salaries of employees or defaulting in payment of the same to the government will be liable to a penalty of an equivalent amount, the CBDT said while notifying annual circular for TDS on salary for FY 2015-16.
"Section 276B lays down that if a person fails to pay to the credit of the Central Government within the prescribed time, as above, the tax deducted at source by him or tax payable by him... He shall be punishable with rigorous imprisonment for a term which shall be between 3 months and 7 years, along with fine," it said.

Besides, interest will also have to be paid before furnishing of quarterly statement of TDS for respective quarter, it added.
The circular detailed the time line for deduction of TDS as well as its credit to the government for various categories of employers.
"If any person fails to deduct whole or any part of tax at source or fails to pay the whole or part of tax..., he shall be liable to pay, by way of penalty, a sum equal to the amount of tax not deducted or paid by him," it said.

The circular also contains the Income Tax rate under various slabs as well as the surcharge of 12 per cent on individuals earning Rs 1 crore and above. It also detailed procedure for valuation of perquisites and the tax thereon.

The circular also notified 2 per cent Education Cess on Income Tax and another 1 per cent secondary and higher education cess.
The Central Board of Direct Taxes (CBDT) had in December
come out with draft POEM guidelines which suggested two-stage process for determining the place of effective management of a company, with a view to assess its tax liability.
According to the draft guidelines, the first stage would be identification of the persons who make the key management and commercial decision for the company and secondly the determination of the place where these decisions are made.
The modification of the existing norms, it said, is necessary as many companies skip tax liability by misusing the guidelines.

Under the existing norms, many companies "artificially escape" the residential status under these provisions by shifting insignificant or isolated events related with control and management outside India.
The draft norms say PoEM would mean a place where key management and commercial decisions that are necessary for the conduct of a business or an entity as a whole are in substance made.
The draft norms also distinguish between active business outside India and passive income for the purpose of determination of PoEM.
According to the guidelines, a company will be deemed to be engaged in active business outside India if the passive income (royalty, capital gains, dividend, interest, rental income) is not more than 50 per cent of its total income, less than 50 per cent of its total assets are situated in India, less than 50 per cent of the employees are situated in India and the pay roll expenses on such employees is less than 50 per cent of the total.

The draft guidelines also state that "the place of effective management in case of a company engaged in active business outside India shall be presumed to be outside India if the majority meetings of the board of directors of the company are held outside India."
Guidelines provide factors such as location where a company's board regularly meets and makes decisions, head office location, etc.